Plastic charges exposed by local business

Increased government regulations are becoming more expensive for business owners and consumers. Several large banks will soon begin adding new usage fees to both credit and debit card transactions in response to a federal law intended to prevent another banking meltdown.

Hidden transaction fees, according to Sen. Dick Durbin (D-Ill.), after whom a controversial section of the Dodd-Frank Act, called the Durbin Amendment, is named, revealed profits made by big banks that charged businesses a fee every time a customer made a purchase with plastic. Many of those fees, it was discovered, exceeded actual processing costs by as much as 400 percent.

“What I am seeing is [what] I’m charged,” Wright’s Flooring owner Doc Wright said. “My average [charge to his business] is probably 4.25 percent. The highest I’ve seen is 5.5 percent.”

“That’s one of the reasons I don’t accept credit or debit cards,” Bent Pages Bookstore co-owner Molly Bolden said. “Why should I pay the credit card company for you to be able to use their card in my store?”

The Dodd-Frank Consumer Financial Protection Act took effect on Oct. 1, and implemented price controls on transaction fees. The costs of those fees on businesses were expenses that were, at least in part, passed on to the consumer.

The legislation is intended to protect consumers and businesses from excessive bank card charges by limiting transaction fees, which brought in an estimated $6.6 billion in revenue for banks every year.

The response from some banking institutions and major credit card companies came not only in still imposing fees on the business, but directly charging the customers that hold their cards, to make up the difference on what they had previously charged merchants to insure profits.

Bank of America announced earlier this month that it will begin charging customers $5 a month for the use of their debit cards on purchases. The company is reportedly imposing the fee to offset a $2 billion annual loss resulting from the Durbin Amendment.

Wells Fargo plans to charge its customers $3 a month for debit card uses in some regions, and claims it could lose $1 billion if it does not do so. J.P. Morgan Chase and Citibank are reported to be making plans to roll out new fees. No one from those companies could be reached that could speak about any fee structure changes.

“What I’m seeing is everybody has these reward cards,” Wright said. “Debit cards don’t allow reward points, unless you run them as credit cards. The credit card companies have always charged somewhere around 2 percent. Now they are charging an additional 2 percent so they can give their customers back one percent. You are paying yourself your reward and they are taking it out of the merchant [for you to use your card] as well.”

Capital One, which offers a reward card product, has no immediate plans to change its present structure. “I can tell you that Capital One is always reviewing our products,” Capital One Corporate Communications officer Amanda Landers said. “We currently have no plans to introduce new debit card fees.”

“We have no plans to change our existing fee structure as a result of the Durbin Amendment to the Dodd-Frank Act,” Synergy Bank Executive Vice President Ben Borne said. “We have no desire to change our current, fee structure and it’s too early to tell what specific impact the new regulations will have on us. It’s something we will have to monitor and manage as we go forward.”

Borne said in the case of his bank, program checking accounts comprise 45 percent of their personal checking base. They charge no fee for Visa debit card use on those products. For other personal checking products, Synergy provides a Visa debit card with a $12 annual fee but no transaction fee.

A Bank One customer service representative, who identified herself as Fallon and said they do not give last names by corporate policy, said that their institution is not charging any across-the-board debit card fee. “We have a $1 debit card fee as of right now for one particular account,” she said. “Every other debit card use is free. As far as I know it is not changing.”

Durbin said in an email that the intent of his amendment in the Dodd-Frank Act was to create transparency and create a competitive market. “Swipe fee regulation will still allow banks to cover the actual costs of debit transaction but will rein in the banks’ excessive profit-taking,” he said. “Small business and merchants will benefit from fee relief and consumers will benefit from lower prices. [B]anks that try to make up their excess profits off the backs of their customers will finally learn how a competitive market works.”

Sen. David Vitter (R-La.) said he has concerns about the kind of power the Dodd-Frank Act gives the newly created Consumer Financial Protection Bureau with specific requirements for accountability, which he and other Republicans said could dictate what consumers can buy and what they will be charged for those transactions.

“There’s a real danger of the CFPB being a super-bureaucracy that does a lot of damage to companies by overreaching in its attempts to protect consumers,” Vitter said. “We’ve got to implement the proper checks and balances.”

“What I’ve seen in the past 10 years is an increase in the amount of transactions that happen on credit and debit cards,” Wright said. “We use to have maybe one or two a day. Now we have maybe 15 a day.”

Wright said that even with in-store financing, merchants are charged 6 to 8 percent by the banks.

It is no secret that credit card use continues to escalate in the United States. During the past 11 years, the number of credit card holders jumped from 159 million in 2000 to more than 180 million in 2010, even in the face of a massive recession.

In 2010, combined Visa and MasterCard debit card transaction volume in the United States totaled more than $36 billion. At the same time, combined U.S. purchase volume with the use of debit cards totaled more than $1.4 trillion.

Wright, Bolden and other business owners realize that plastic purchases are not going to end. They simply object to what they could be charged to let someone shop with credit and debit cards in their stores.

“A lot of people don’t realize this is going on,” Wright said. “Then they blame us for increased prices.”